By Tom Hals
March 8 (Reuters) - A Delaware judge on Friday barred the board of Sandridge Energy Inc from resisting a campaign by hedge fund TPG-Axon to replace the board of directors.
TPG-Axon has been seeking shareholder solicitations to replace Sandridge’s directors. It blames the board for the company’s poor performance and alleges that the board allowed Chief Executive Tom Ward to engage in land deals that could benefit him at the expense of the company.
Delaware Court of Chancery Judge Leo Strine wrote in a 38-page opinion that the company’s board was barred from seeking to revoke those consents or from relying upon revocations it had received.
As part of its campaign against TPG, its third-largest shareholder, Sandridge has warned shareholders that replacing its board would trigger a “proxy put” under a credit agreement. That would require the company to offer to repurchase senior notes worth $4.3 billion.
However, the current board could avoid triggering the “proxy put” if it approved of the TPG nominees, and if it did so, then Strine said the board could again actively seek to revoke those shareholder consents given to TPG.
The opinion stems from a lawsuit by an individual Sandridge investor, Gerald Kallick, who supports the TPG consent solicitation.
Strine said the current board can only refuse to give its approval to a slate of nominees if it determines the candidates threatened to cause material harm to the corporation if they were elected. Strine said that was not the case with the TPG nominees.
“Rather, the only ‘harm’ threatened is that the stockholders will choose to seat a new board of directors,” Strine wrote.
Sandridge and TPG did not immediately respond to a request for comment.